11. Denying Blackbeard – Part 2

Engineering in an Age of Limits
Post #11. Denying Blackbeard – Part 2

Blackbeard

Engineers did not invent the steam engine — the steam engine invented them.What will a post-oil society invent?

This is the eleventh post in the series “Engineering in an Age of Limits”. We are facing limits in natural resources, particularly oil; our finances (money seems to be increasingly disconnected from actual goods and services); and the environment as we continue to dump waste products into the air, the sea and on to land.

We are also facing a transition as the Oil Age comes to an end. This is not the first time that society has faced such a shift. At the beginning of the 18th century the principal source of energy in northern Europe was wood. However the forests were mostly depleted so a new source of energy, coal, had to be developed and exploited. The extraction of coal from underground mines posed new technical challenges particularly with regard to removing the water that flooded those mines. So new technologies, particularly the steam engine, had to be developed. Necessity was indeed the mother of invention. These technological developments led to many changes in society, including the creation of the profession of engineering. The transitions that we are currently experiencing as we look for alternatives to oil are likely to generate equally profound paradigm shifts.

In this blog we consider two questions:

What new paradigms, new ways of looking at the world, will develop, analogous to the development of engineering in the early 18th century? and

How can engineers and other technical professionals help navigate the troubled waters that we are entering?

These posts are published at our blog site. We also have a LinkedIn forum that you are welcome to join.

We have also, during the course of the last two years, published other posts to do with these topics. They are listed at our Welcome page.

This post discusses the ExxonMobil company therefore I need to point out, as noted in last week’s post, that, as a process safety and process risk professional (see my site at Sutton Technical Books), I have worked as a consultant and project team member with many of the world’s largest oil companies, including ExxonMobil. I do not own stock in the company.

Introduction

In last week’s post — Denying Blackbeard Part 1 — I reflected on a speech given by Rex Tillerson, CEO of ExxonMobil. In it he challenged the validity of climate change. Consequently his company has elected not to make a vigorous response to the problem. Yet failure to do so, in my view, will likely result in the oil and energy companies becoming the like Kodak: global leaders that fade quickly due to an inadequate response to radical changes in the business environment. (The first response of Kodak management when informed about the digital camera — invented in 1975 by one of their own employees — was simply to wish that the whole problem would go away, or at least that something would turn up to solve the problem. But the digital camera did not go away and climate change is not going to go away either.)

I also noted in last week’s post that I was somewhat puzzled by the response of the oil companies to their changing business environment for two reasons. First, these companies are well used to taking risk: the decisions that they make to spend huge amounts of money exploring for new wells and then producing the oil and gas from those wells require a high understanding and tolerance for risk. It also means that these companies have well-developed risk analysis models.

The second reason for my puzzlement was to do with their approach to safety — which is one of total commitment and a willingness to put the ethic of safety before profits. People who have not worked for large oil and energy companies may not choose to believe that this it is the case. But the reality is, for many of these companies, safety does indeed come first. Yet climate change is simply another ethic; and, like safety, it is one in which people, both employees and members of the public, take priority over other business goals.

The priority given to the ethic of safety can be illustrated by two examples: the Blackbeard (non) incident and the success of behavior-based safety programs, which we will discuss in a subsequent post.

Well Conditions Were Hellish

The Blackbeard Facility

The (Non) Incident

In 2005 ExxonMobil and its partners started drilling the Blackbeard prospect in the Gulf of Mexico. It had the potential to be an “elephant field”; initial estimates suggested that the well contained at least 500 million barrels of oil. (The Macondo prospect – see below – held only about 50 million barrels.)

Though located in shallow water (just 70 feet) the well itself was ultradeep. After 500 days and expenditures of $210 million the well depth was at 30,067 feet, within 2,000 feet of its target. However ExxonMobil was running into problems; at these record depths temperatures and pressures were high: 600°F and 29,000 psig. Well conditions were reported to be “hellish”. They had already experienced one kick — a sudden release of natural gas up the drill string — and were concerned that another kick could not be controlled by the drilling mud and that the Blowout Preventer (BOP) may not have sufficient capacity. In the ensuing discussions as to whether to keep going or not Rex Tillerson sided with the drillers. Exxon wrote off Blackbeard as a $187 million dry hole, even though it obviously wasn’t. At the time it was considered to be the most expensive “dry hole” ever.

“There was a pretty extensive discussion between the geoscientists, who wanted to keep going — here they were near their objectives — and the drillers, who were saying, ‘We are just really not comfortable’. We were right at the ragged edge and they felt the risk was too great.

The prospect was later taken over by the company McMoRan. Using heavier equipment and a bigger blowout preventer they reentered the well bore, went down another 3,000 feet, and hit a big payzone. (This does not mean that ExxonMobil had made an error — they simply made the best decision they could with the data available to them at that time.)

Management Lessons

On March 24th 1989, some sixteen years before the Blackbeard decision, the oil tanker Exxon Valdez ran aground near the port of Valdez in Prince William Sound, Alaska. Eight of the ship’s cargo tanks were ruptured and approximately 250,000 barrels of oil were released. The accident had major environmental and long-term economic consequences (no one was injured). Spilled oil eventually covered 2100 kilometers of coastline.

This event led to a new way of thinking at ExxonMobil. Mr. Tillerson is quoted as saying, “Valdez led to a profound rethinking of safety management at the company.” As a consequence the company developed a rigid system of rules for all its operations, from gas stations to offshore platforms.Today, Exxon stands out among its peers for its obsessive attention to safety, according to analysts and industry insiders.

Macondo

Deepwater Horizon

ExxonMobil came in for its share of criticism for its decision to walk away from Blackbeard, and still does. In 2014 Forbes magazine said,

Furthermore, there’s the question of whether Exxon is even up for drilling a complex, ultradeep well in a frontier region. The company has begun to shy away from such risky stuff in recent years — preferring to leverage its gargantuan balance sheet and project management skills bring known hordes of oil and gas to market, rather than look for new ones.

After all, the last time Exxon attempted an ultradeep well, it chickened out . . .

However, for most people questions as to the wisdom of the decision to abandon the Blackbeard prospect were pretty much laid to rest on 2010 when the Deepwater Horizon rig at BP’s Macondo prospect blew up and sank taking seven lives with it and creating the nation’s worst-ever oil spill.

Exxon’s ‘lack of guts’ looks a lot more like justified conservatism and prudence, and a prescient awareness that safety, caution and catastrophic risk avoidance would be key themes as oil companies were forced to push the envelope in the search for new oil.

Paul Sankey, Deutsche Bank

A critical difference between ExxonMobil and BP was that the decision to walk away from the Blackbeard prospect was made by the highest levels of management. The decisions to do with the Macondo well, however, were made by much lower levels of management. Hence BP’s senior management was caught totally off balance when the blowout occurred.

Safety Culture

The Blackbeard incident shows how a company culture can change. In the case of the Exxon, the Valdez event led to management instituting a safety culture that is among the best in industry.

A second lesson to be learned from this event is that the decision as to what to do rose to the highest levels of the ExxonMobil company. This in contrast to the BP culture at Macondo where key decisions were made by the first line of management onshore and senior management knew nothing of what was going on until it was too late.

Conclusions

Up until this point in the series I have outlined the history of how we got to where we are regarding the Age of Limits and I have provided an overview of some of the predicaments that we face. This is the first post in which I look at ways in which engineers and managers in the process industries can help address these predicaments.

With regard to the energy companies and the Age of Limits we can draw the following conclusions:

The burning of oil and gas creates billions of tons of carbon dioxide ever year.

This carbon dioxide is causing an inexorable increase in atmospheric temperature which in turn is creating many, many problems.

No company is secure in the face of change and, as Kodak learned, change can take place with bewildering speed. It took less than forty years for a company that was utterly dominant in its market to go from inventing the digital camera to bankruptcy caused by that invention.

Oil companies will have to adapt (Stein’s Law, “What cannot go on will stop.”)

Those companies that fail to do so this will experience their ‘Kodak Moment’

But the companies that adapt quickly and effectively to the change may prosper and flourish.

This all sounds rather negative and threatening but the lesson to be taken from the Valdez/Blackbeard sequence of events is that large companies can change their culture. And it need not be just one company. In future posts we will discuss the topic of behavior-based safety and show how a whole industry changed its approach to managing safety, and how successful that effort was.

So Lesson #1 is,

Large companies can change their culture in response to radical external events.